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Cautious outlook remains for manufacturing sector in first half of 2023

FMM In The News: THE MALAYSIAN RESERVE, Thursday, March 16, 2023 - The Federation of Malaysian Manufacturers’ (FMM) said the country’s manufacturing sector is showing further signs of moderating as manufacturers continue to brace for challenging business conditions to persist in the first six months of 2023 (1H2023).

The forward-looking indicators from  FMM Business Conditions Index (FMM BCI) are suggesting a slowdown in capacity utilisation, capital investment, hiring and a relatively tame outlook on production for 1H2023.

It noted that it is also likely that inventory levels may be moderated in line with the current trends in demand.

“Except for cost of production, capital investment and employment, all the other indexes had also registered below the demarcation level of optimism, further surmising the slow outlook going forward,” the survey showed.

For the second survey in a row, FMM said the expected index for business activity had stayed below the optimism threshold at 92, having lost two points from the prior survey, inferring that business activity is expected to slow further in 1H2023. 

It noted that 27% of the respondents projected a pick-up in business activity soon, down from 29% previously.

“Majority (39%) believed that their business activity will remain stable in the coming months, while 35% had responded negatively,” it said.

FMM said the expected index for local sales is higher than that for export sales. 

“At 91 and 84, respectively, it suggests that local sales are expected, once again, to be ahead of export sales in early 2023,” it said.

Notwithstanding this, FMM said both indexes had remained below the optimism threshold for the second survey in a row, implying that a slowdown in sales is expected on both the local and external fronts.

FMM said 22% of the respondents who are domestic-oriented projected higher sales in the coming months, while 32% responded negatively. For those who are export-oriented, 22% were positive in their near-term sales outlook, down from 26% previously. 

“With sales expectations looking cautious, plans for production and capacity utilisation are similarly prudent.

Not only have both these indexes in the latest survey fallen from the preceding survey to 97 and 94, respectively, but their position below the optimism threshold also indicates that a slowdown in both of them is imminent in the coming months as well,” FMM said.

It noted that 30% of the respondents planned to step up their production volume soon, while 26% planned on increasing their capacities in 1H2023, down from 32% and 31% previously, respectively.

“The expected index for cost of production fell for the second consecutive survey to 166, inferring that production costs are expected to moderate in the coming months, but remain at elevated levels amid persistent cost and demand pressures,” it said.

FMM remarked that 73% projected higher production costs soon, down from 81% previously. 

Capital investment is expected to be relatively flat in 1H2023, as indicated by the expected index for capital investment which, at 112, is little changed from the previous survey’s 113.

The survey showed that 32% are contemplating increasing their capital expenditure (CAPEX) sometime soon, marginally down from 33% in the previous survey.

Meanwhile, labour intake in the manufacturing sector will continue in 1H2023, albeit at a slower pace. This, it asid, is shown by the expected index for employment which fell to 113 from the 117 previously. 

“28% of the respondents planned to recruit more workers soon, while 57% are planning to retain their existing workforce for now, compared to the preceding survey’s 33% and 50%, respectively,” it noted. – TMR

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